*Written by Mr Yashovardhan Rathore
Introduction
When talking strictly about takeovers from a corporate standpoint, it happens when one consortium successfully bids to take over or gain control of another. The majority ownership in the target company can be purchased in a takeover. So, when we talk about the footballing world, it occupies a vital role in this economy and continues to flourish as the world's most popular, commercialized, and mediatized sport. This game has continued to fascinate and enchant billions of people throughout the world, urged forward at its highest professional ranks by bankrolling owners and massive media rights deals and driven by an ever-broad variety of grassroots participation. Typically, consortiums strive to advance for takeovers to pursue an opportunistic takeover where they believe the target is undervalued. The acquirer may believe there is long-term value in purchasing the target. The acquiring group usually gains market share, develops economies of scale, lower costs, and enhances profits through synergies as a result of these acquisitions.[1] Over a while, there have been several successful takeovers as well as numerous failed attempts in the world of club football. However, one thing is certain: there is a rush to buy Premier League clubs (English League).
Football as a business in the UK
This sport has been a part of the modern history of the UK since the nineteenth century, but the seeds of it becoming a significant business in the UK started in Margaret Thatcher's policies as the PM, with the belief in state's rights and free markets rather than plan and regulate industry and people's lives. Before this, the English Football Association (FA) was adamant that clubs were not there to be exploited by owners or directors, and it implemented laws forbidding directors from being paid, limiting shareholder dividends, and safeguarding grounds from asset stripping. But all that changed in 1983, when the FA authorized clubs to circumvent a law prohibiting directors from being paid, the clubs were able to be floated on the stock exchange, and Irving Scholar's Tottenham Hotspur became the first club to announce their intention to do so. Following that, every other club that went public incorporated holding companies in the same way to get around the FA's requirements.[2] In 1992, The top 22 English clubs made a separate division and signed a deal with Rupert Murdoch's BSkyB. This way, the Premier League was able to attract television money. This is how the Premier League was born, capitalizing on television rights. A contract was reached in which 50% of the money would be distributed equally between the clubs, 25% would be based on the previous season's league place, and only 25% would be based on the number of times a club appeared on the tele, every season.[3] Another important impact, which was seen not only in English football but also in the whole European footballing market was the Bosman ruling in 1995, where the European Court of Justice ruled that “Belgian midfielder Jean-Marc Bosman was free to leave RFC Liege on a free transfer as his contract had expired.”[4] This case talked about the freedom of movement for workers, freedom of association, and the direct effect of Article 45 of the Treaty on the Functioning of the European Union (TFEU).[5] This decision had a significant impact on footballer transfers, paving the way for players to seek large signing-on fees and salaries from new teams, as well as clubs offering large sums to keep players after their contracts expired.[6] This also meant that the top 20-25 clubs in Europe had the financial power to offer big contracts to the players, which increased the gap with the rest smaller clubs in a financial capacity. This also amplified the English Premier League at that time and made it, the world’s most-watched sporting league.[7] The competitive balance was also not disturbed in the league as the imported players could go to a variety of clubs, not just the top teams[8], in turn attracting the ownership of several foreign business tycoons.
Consortium Takeovers in Premier League
There have been some significant changes in the ownership of the English clubs in the 20th century, where the directors acted as ‘custodians’ of the club and were responsible to support and look after them. Since the 21st century, there has been a significant shift in that, with English football clubs being taken over by foreign investors and companies and sold like any other, despite their governing body's insistence on 'history' and laws. The first major takeovers were from West London and Manchester in 2003.
In July 2003, Russian oligarch, Roman Abramovich bought the ownership of Chelsea from Ken Bates for £140 million. It was the biggest takeover in British football history at that time.[9] Despite his denials that he was acting under Kremlin orders, there was widespread agreement, especially among non-Chelsea fans, that this was done to boost his power and raise Russia's prominence, not just among the elite but also among ordinary British people.[10]
This was the reason for the ownership crisis all the way after 19 years when the British government announced sanctions on Abramovich in response to the 2022 Russian invasion of Ukraine. This has subsequently led to him selling the club to a new ownership group, led by Todd Boehly, Clearlake Capital, Mark Walter, and Hansjörg Wyss for £4.25 billion.[11]
The Manchester United takeover in the very same year is also very engrossing, which started when Malcolm Glazer bought the stake in the club in numerous attempts through a holding company called Red Football, which currently stands at 69%. This takeover by the Glazer was the costliest in history and was combinedly valued at £800 million. This takeover has attracted a lot of criticism from Manchester United fans as the club was plunged into huge amounts of debt as vast loans were taken out to purchase the clubUnited now owes £494.8m to the financial institutions that backed the Glazers at the end of the year 2021 as per the club’s latest accounts.[12] Several other foreign owners have also acquired ownership in the Premier League like Aston Villa being owned by Egyptian billionaire Nassef Sawiris and American businessman Wesley Robert Edens; Stan Kroenke (Kroenke Sports & Entertainment) is the majority shareholder of Arsenal FC with a 66.67% stake; Fenway Sports Group (FSG), headed by American businessman John W Henry, took over Liverpool for £300 million in 2010 to name a few examples. This has also opened gates to the entry of consortiums from the Middle East, which have mammoth oil wealth.
Injection of Oil money into football
As we have already discussed the Chelsea takeover by Abramovich, who made his fortune from the oil business, not only owned Chelsea but also had an interest in CSKA Moscow a few years back, not directly as UEFA rules prevent one person from owning more than one team participating in UEFA competitions. Bundesliga side Schalke also has a long-standing deal with Russian state oil company Gazprom, which ended after the 2022 Russian invasion of Ukraine. Some of the world's most prestigious clubs, such as Real Madrid, Arsenal, AC Milan, and Benfica, have been sponsored by the Emirates Group, a Dubai-based company.[13]
However, 2008 saw one of the biggest inclusions of oil money., when Manchester City was bought by Sheikh Mansour bin Zayed Al Nahyan through the Abu Dhabi United Group (ADUG), who succeeded Thaksin Shinawatra as the club's owner. ADUG is the majority shareholder with a 78% stake, with investment firms like Silver Lake, China Media Capital, and China CITIC Group having the rest of the stake. The efforts to avoid associating Abu Dhabi with Man City raise the question of what Mansour and his Abu Dhabi allies are getting from the ownership. Some say the goal is to build a new image, with Abu Dhabi being most identified with one of the top football clubs in the world, rather than its torture history.[14]
Another instance was when Paris Saint-Germain, a French club, was bought by Al Thani, the Emir of Qatar in 2011 through Qatar Sports Investments (QSI) and became the sole shareholder in March 2012. These acquisitions have not only caused trouble with their human rights record in their countries but have raised eyebrows by violating the UEFA Financial Fair Play (FFP) regulations. These are some rules designed to keep professional football clubs from spending more than they earn in the pursuit of success, and so avoid financial problems that could jeopardize their long-term viability. Some can argue that these regulations have been instigated to prevent financial doping. PSG made some massive deals when they brought the likes of Neymar, Mbappe, and Messi into their clubs by making record-breaking deals both with the transfer fee (for the first two) and the wage that they offered. Some forums have expressed concern that as clubs become increasingly desperate to raise “allowable” revenue that will improve their balance sheet, they will engage in questionable U.S.-style advertising and sponsorship practices from multiple backers, potentially jeopardizing football's ethical composition,[15] like when some different sovereign backed company starts sponsoring the club, which are just different on a fictitious-level than the ownership. The widely-publicized stadium deal between Manchester City and Etihad Airways has caused great consternation in football circles. PSG's sponsorship with Qatar Airways, which is also state-owned like the club, is another example of this.
The latest takeover to happen by a middle-east state is when Newcastle United was bought by Saudi Public Investment Fund (PIF) and attained an 80% stake with RB Sports & Media (10%) and PCP Capital Partners (10%). The whole deal was stuck at £305 million. This was eye-raising as Saudi Arabia’s Crown Prince Mohammed bin Salman was the chairman of PIF. The sovereign fund here was alone worth $580 billion, which is nowhere near what the other teams, even combined could add. The problem here is not that other clubs can’t spend or Newcastle’s new owner can spend whatever they want, but that they won’t care if any financial investment goes wrong as they have too big of backing than any other non-state-owned club.
Another problematic element that comes with oil state ownership is the practice of sports washing. It happens when shady regimes, individuals, or companies in gaining legitimacy by investing in or sponsoring major sports events. The aim is to shift the public image or divert attention away from some of their less acceptable behaviours' by doing so and to take advantage of the sport's financial clout and influence around the world.[16] Human Rights Watch describes sport washing as: “Egregious human rights abusers using sports to scrub their awful human rights abuses.”
Things involved during a takeover
Privately owned companies and public limited companies can have different ownership arrangements when it comes to football teams in England. As a result, if a foreign investor wants to take over an English football club, they must do so in compliance with the regulations governing the team's existing structure. If the club is privately owned, for example, all that is required is for an adequate offer to be approved by the present owners. If the club is a public limited company, however, the new owner must have a particular number of shares before they may acquire possession.[17]
Then the club, which is in question for the takeover has to be valued. they are talked about in terms of enterprise values, which is a fairly familiar idea in the business pages but appears to perplex some football fans and journalists. The enterprise value of a company is equal to the sum of its equity value, the cost of its shares, and its net debt. To put it another way, you add the debt. But another element to that is a club’s value, like its beauty, is all in the eyes of the beholder.[18] Some clubs can have a well-established fanbase, a one-city team, and a good stadium with decent capacity, but let’s say, if they do not have a good trophy collection, then the value can go down during the negotiation. A look at the underlying EBITDA (earnings before interest, taxes, depreciation, and amortization) before player trading is also made.
Another thing that happens during a takeover is a “Fit-and-proper-person” test. It has been in existence since 2004 and is done for the directors to prevent corrupt or untrustworthy people from serving on the boards of specific organizations. There are many conditions in the Premier League “fit and proper person test” which if violated, can disqualify the said person from becoming the director.[19]
Takeovers in football, although quite common now, are still a bag of mysteries. Some owners may work for the betterment of the club, its players, staff, and the grassroots community, but others may pose a threat to football because, at the end of the day, there is dirty money in football, as there is in almost every other facet of society, and if you look at it, sports are used as a distraction technique, but when looked closely at most aspects of our lives, we all associate with or benefit from unsavory institutions, and as a result, we owe it to ourselves, to be aware and especially the governing authority of that sport or that particular league.
*The author is a Law Scholar, at Jindal Global Law School, OP Jindal Global University, India.
(The image used here is for representative purposes only)
References:
[1] Kenton, W., 2020. How Takeovers Work. [online] Investopedia. Available at:
<https://www.investopedia.com/terms/t/takeover.asp#:~:text=A%20takeover%20occurs%20when%20one,the%20merger%20and%20acquisition%20process.> [Accessed 27 May 2022].
[2]Conn, D., 2007. What money can't buy. [online] the Guardian. Available at: <https://www.theguardian.com/sport/2007/jul/29/football.newsstory1> [Accessed 27 May 2022].
[3] MacInnes, P., 2017. Deceit, determination and Murdoch's millions: how Premier League was born. [online] the Guardian. Available at: <https://www.theguardian.com/football/2017/jul/23/deceit-determination-murdochs-millions-how-premier-league-was-born> [Accessed 27 May 2022].
[4] Union Royale Belge des Sociétés de Football Association ASBL v. Jean-Marc Bosman (1995) C-415/93
[5] Article 45 - Freedom of movement and of residence. European Union Agency For Fundamental Rights
Available at: <https://fra.europa.eu/en/eu-charter/article/45-freedom-movement-and-residence#:~:text=1.,2> [Accessed 27 May 2022].
[6] Sen, D., 2021. Explained: Why there is a rush to buy Premier League clubs. [online] The Indian Express. Available at: <https://indianexpress.com/article/explained/explained-football-premier-league-clubs-takeovers-7585398/> [Accessed 27 May 2022].
[7] Campbell, D., 2002. United (versus Liverpool) Nations. [online] Theguardian.com. Available at: <https://www.theguardian.com/observer/osm/story/0,,626773,00.html> [Accessed 27 May 2022].
[8] Binder, J. & Findlay, M., 2008. The Effects of the Bosman Ruling on National and Club Teams in Europe. Journal of Sports Economics.
[9] News.bbc.co.uk. 2003. Russian businessman buys Chelsea. [online] Available at: <http://news.bbc.co.uk/2/hi/business/3036838.stm> [Accessed 27 May 2022].
[10] Radden Keefe, P., 2022. How Putin’s Oligarchs Bought London. [online] The New Yorker. Available at: <https://www.newyorker.com/magazine/2022/03/28/how-putins-oligarchs-bought-london> [Accessed 27 May 2022].
[11] Hughes, G., 2022. Chelsea takeover: Todd Boehly's £4.25bn bid approved by government as Roman Abramovich era set to end. [online] Sky Sports. Available at: <https://www.skysports.com/football/news/11095/12620164/chelsea-takeover-todd-boehlys-4-25bn-bid-approved-by-government-as-roman-abramovich-era-set-to-end> [Accessed 27 May 2022].
[12] Jackson, J., 2022. Manchester United’s financial results reveal net debt hit £495m at end of 2021. [online] the Guardian. Available at: <https://www.theguardian.com/football/2022/mar/01/manchester-united-financial-results-reveal-net-debt-hit-495m-at-end-of-2021#:~:text=Manchester%20United's%20net%20debt%20stood,to%20the%20club's%20latest%20accounts.> [Accessed 27 May 2022].
[13] Goal.com. 2019. Oil money: Petrodollars, Man City, PSG & how modern football is fuelled by mega-rich industry | Goal.com. [online] Available at: <https://www.goal.com/en-in/news/oil-money-petrodollars-man-city-psg-how-modern-football-is/k8rob5liyzrl1wr63osn57ytk> [Accessed 28 May 2022].
[14] Wigmore, T., 2020. Want to know how successful sportswashing is? Look at Man City. [online] inews.co.uk. Available at: <https://inews.co.uk/sport/football/manchester-city-abu-dhabi-uae-sports-washing-229247> [Accessed 28 May 2022].
[15] Cherrie, A., 2012. English clubs to adopt U.S sponsorship model?. [online] FootballFanCast.com. Available at: <https://www.footballfancast.com/opinion-2/football-blogs/english-clubs-to-adopt-u-s-sponsorship-model> [Accessed 28 May 2022].
[16] Jensen, N., 2019. Does football really have a moral code?. [online] GAME OF THE PEOPLE. Available at: <https://gameofthepeople.com/2019/08/17/does-football-really-have-a-moral-code/> [Accessed 29 May 2022].
[17] InBrief.co.uk. n.d. Takeovers of English football clubs by the fans of the club - InBrief.co.uk. [online] Available at: <https://www.inbrief.co.uk/football-law/fans-running-football-clubs/> [Accessed 29 May 2022].
[18] Slater, M., 2022. How do you value a football club?. [online] The Athletic. Available at: <https://theathletic.com/3068619/2022/01/14/how-do-you-value-a-football-club/> [Accessed 29 May 2022].
[19] News.bbc.co.uk. 2007. Fit and proper person test. [online] BBC SPORT Available at: <http://news.bbc.co.uk/sport2/hi/football/eng_prem/6923831.stm> [Accessed 29 May 2022].
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